Double Meaning: TARP, When Spelled Backwards, Is PRAT

David Spurr
updated | Author's Website

Dictionary results for: Prat

Dictionary.com Unabridged (v 1.1) prat [prat] – the buttocks.

[Origin: 1560–70; orig. uncert.]

Think for a minute today about the unintended consequences of using taxpayer money to fund the acquisition of smaller banks by larger banks.  WSJ this morning reported that the latest twist in this bizarre TARP “bailout” program is that the larger banks are now going to use the excess funds, the so called $250b dollar “injections” to purchase other financial institutions.

This is unbelievable.

Just when you think that the insanity is at a new peak, it gets crazier.  I’d speculate that either the banking system is really a lot worse then the US public knows or this is the crime of the century.  Perhaps the small banks really have so many bad loans on their books, nobody would touch them.  Maybe they’d all fail, creating a run on the largest banks.  Maybe this is the government’s best solution to avoid another depression.

The government is taking taxpayers’ money and using it to provide cheap financing for larger banks to buy out smaller banks.  The shareholders of these smaller banks are going to reap huge windfalls at the expense of the taxpayer.  By using taxpayer, so-called “government” funds to fund the purchases of the small banks, the buyout premiums are going to be artificially inflated.  The nine largest banks are going to get bigger at the expense of the taxpayer.  Is bigger better?  Hard to say.  It just feels as though the government isn’t being straight up with us.

In a free market economy, those nine banks might have failed and the survivors would have been the small banks that didn’t take the same types of risks.  The nine largest banks took large risks and leveraged their balance sheets, and as a result had their capital bases eroded.  They were given a second chance by the bailout.  The small banks didn’t employ such large amounts of leverage and were not given a second chance.

This TARP program doesn’t even come close to fixing the problem in our banking system.  The true problem is that the nine largest banks were permitted by the US Government to get so large that failure might have taken down the entire banking system.  If those nine banks were allowed to fail, counter-parties overseas would have lost billions and the US Government would have lost credibility in all the world financial markets.
The TARP program just masks the true problems with the banking system.  The true problem is the systemic failure of the US Government to correctly regulate the amount of leverage on the books of banks and brokers.

The various republican and democratic administrations that have had their four years in the White House are way too concerned with their legacies.  They focus too much on the short term solutions that will get them re-elected.  What’s four years ? The types of problems that exist in the economy and the world will take more than four years to solve.  There’s not any significant long range planning.  Just when the impact of a plan may be starting to take effect, a new administration comes in, with a different solution, a different game plan.  Oh well……time for a change……again !

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